We recognize interest income on loans disbursed under the internal rate of return, or IRR, method. As compared to the flat method of recognizing interest income, the IRR method recognizes the revenue over the period of the loan and interest is calculated on the reduced balance of the loan amount. This method of accounting matches the recognition of financial expenses, showing an equal treatment of income and expenses. Further, income on NPAs is recognized only when realized and any interest accruing on such assets is de-recognized totally by reversing the interest income already recognized.

We recognize interest income on deposits with banks on a time proportion accrual basis taking into account the amount outstanding and the applicable interest rate.

We recognize income from membership fees paid by our members on an upfront basis.

We account for dividend income on establishment of right to receive basis by the balance sheet date.

From time to time we sell and assign a group of similar loans from our outstanding loan portfolio to financial institutions in return for an upfront fixed consideration equal to the aggregate outstanding principal amount of the loans plus a discounted value of the future interest payments of the loans assigned. The consideration we derive from the assignment of our loan portfolios in these transactions depend on a number of factors including the term of the loans, yield of the loan portfolio assigned and the negotiated discounting rate. While we receive the consideration as a lump sum up front payment on the date of assignment of the loan portfolio, we recognize the income from the assignment over the life of the assigned loans to reflect our income in line with interest income on portfolio loans.

We recognize income from assignments of loans, over the life of the receivables assigned on an accrual basis. We recognize loss, if any, arising from assignments of loans immediately.

We maintain provision policy for all loans to members that comply with RBI requirements, as prescribed in the Non-Banking Financial (Non-Deposit Accepting or Holding) Companies Prudential Norms (Reserve Bank) Directions, 2007. We write off all overdue loans where the tenure of the loan is completed and in the opinion of management the amount is not recoverable, as well as any loss assets identified as such under existing RBI guidelines. In addition, we maintain provisioning standards in excess of the RBI requirements with respect to our loans outstanding.

The following table compares applicable RBI regulations to our provisioning policies for our proprietary loans

Provisions and Write Offs for Proprietary Loans
Asset Classification	RBI Norms		SKS – for A.P. State		SKS – for Non A.P. States
	Period	Provision	Period	Provision	Period	Provision
Income reversal	Above 180 days	100%	Above zero days	100%	Above 8 weeks	100%
Standard assets	Up to 180 days	0.25%	Up to 180 days	0.25%	0 - 8 weeks	0.25% - 1%
Sub-standard assets	180-720 days	10%	180-720 days	10%	8 - 25 weeks	50%
Loss assets	Above 720 days	100% Provision/Write off	Above 720 days	100% Provision/Write off	Above 25 weeks	100%

Note:

(1) When RBI regulations stipulate a nil provision, we conservatively calculate a provision using the portfolio at risk method. In this method, the standard asset provision is linked to a portfolio at risk calculation representing the amount overdue as a percentage of gross loans and advances, and the provision is determined using the following guidelines.

PAR	Estimated Provision adopted by the Company (% of Standard Assets)
0 – 1%	0.25%
Above 1% to 1.5%	0.50%
Above 1.5% to 2%	0.75%
Above 2%	1.00%

(2) All other loans and advances are provided for in accordance with the Non-Banking Financial (Non-Deposit Accepting or Holding) Companies Prudential Norms (Reserve Bank) Directions, 2007
(3) All overdue loans where the tenure of the loan is completed and in the opinion of the management, the amount is not recoverable, are written off.
(4) All loss assets identified pursuant to the RBI guidelines are provided for or written off.

Provisions and write offs for assigned loans are made on the basis of the actual short collection of the assigned loan, or as per our provisioning policy for loans, whichever is higher, subject to maximum of any guarantee given to the to the assignee bank. Short collection is the difference between the amount to be collected and the amount actually collected from the member. Short collection for any principal amount due is immediately written off in the period in which the short collection occurs and short collection for any interest payable is provided for in the period in which the short collection occurs.